Policy relating to Authorization of Banks as Note Issuing Banks

With the approval of the Financial Secretary and following consultation with the note issuing banks (NIBs), the Hong Kong Monetary Authority (HKMA) announced today (Wednesday) an additional policy requirement ("the policy") relating to the continuing authorization of banks as NIBs. The policy requires that an NIB shall have no close association with any foreign government or foreign government controlled entity which either alone or with associates is entitled to exercise or control the exercise of 20% or more of the voting power at any general meeting of the bank or its holding company or either directly or indirectly influences or seeks to influence any aspect of the management or business of the bank. Pursuant to section 3(5) of the Legal Tender Notes Issue Ordinance, conditions have been attached to the authorization of the NIBs to effect this policy. In considering the issue of shareholding control by a foreign sovereign controller, the HKMA will take into account all other relevant factors including the identity and influence on the NIB's business of other major shareholders and the size of their shareholding.

"The policy is intended to guard against close association of our NIBs with any foreign sovereign entity. Given that an NIB has a systemically significant status in Hong Kong and fulfils the important public function of note issuance, it would not be in Hong Kong's public interest for an NIB to be closely associated with a foreign sovereign entity," an HKMA spokesperson said. "The policy will have no impact on the financial soundness of the three NIBs or their current status as NIBs. Neither will the policy affect the current system and arrangements for issuing notes through the three NIBs, which are functioning effectively. The HKMA values their continued contribution as NIBs," the HKMA spokesperson emphasised.

Apart from these new conditions arising from the policy, an NIB will need to continue to observe all existing conditions and requirements including provision of full US dollar backing for the note issue, provision of adequate and secure storage and transportation facilities, maintenance of efficient distribution arrangements for note issue and continuing to co-operate with the government to maintain monetary stability in Hong Kong.

For further enquiries, please contact:
Peggy Lo, Manager (Press), at 2878 1687 or
Hing-fung Wong, Officer (Press), at 2878 1802

Hong Kong Monetary Authority
18 July 2007